| Title | Self-enforcing trade policy and exchange rate adjustment |
|---|---|
| ID_Doc | 73048 |
| Authors | Auray, S; Devereux, MB; Eyquem, A |
| Title | Self-enforcing trade policy and exchange rate adjustment |
| Year | 2022 |
| Published | |
| Abstract | We explore the cyclical pattern of trade protection in a simple New Keynesian open economy macro model. Tariff rates are determined endogenously in a sustainable equilibrium of a two country trade policy game. The incentive to levy tariffs is greater when the exchange rate is floating, since a fixed exchange rate removes the ability to manipulate the terms of trade. If price are fully flexible, we find that protectionism is basically a-cyclical. By contrast, with pre-set prices, tariffs respond to both monetary and productivity shocks. But the degree of pro-tection may be pro-cyclical or counter-cyclical, depending on the pattern of shocks and param-eter values.(c) 2021 Elsevier B.V. All rights reserved. |
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